William Schmidt,
- Tiger Software's Creator
(C) 2007 William Schmidt, Ph. D. - All Rights
Reserved. No reproductions of this blog or
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without explicit written consent by its author is
permitted.

It Pays To Understand How
Political The Fed Really Is and To Use PeerlesS Stock Market Timing!

Background and Defnitions.

As
much as any Washington institution, the Fed determines whether your business will
grow or shrink, whether your stock portfolio will provide
for retirement or you will not be
able to retire and whether your neighbor will have a job or
he will get laid off. The Fed
Chairmen serve for 4 year terms, but usually much
longer due to how massive is their
authority and power. The Chairman is one of the seven
Governors appointed by the President
and confiremd by the Senate. Each of these Governors
serves a 14-year term! Hence
the independence of the FRB.

The
Discount Rate is set by the Fed. This is the rate of interest member banks
are charged when they borrow from a Federal Reserve bank.
The other key FED instrument
of interest rates is the Federal Funds Rate. Changes in
the Fed Discount Rate typically
are followed by changes in the Fed Funds rate in the same
direction and by about the
same magnitude. This is the interest rate at which private
banks lend balances at the
Federal Reserve to other private depository insttitutions.

In
this study, I am mainly concerned with changes in the Fed's Discount Rate from
1955 to 2007 and how they impact the stock market. Because the Federal Reserve
is so powerful, it is necessarily highly political,
despite pretensions of independence. Actually,
it is its political nature which makes it most
predictable. Here is a review of 52 years
of Fed Discount Rate changes, their politics and their
impact on stock prices.

During
Presidential Election years, politics intrudes especially obviously. Is the
Fed likely to reduce rates in September and October in
these years more than
in other years when there is no Presidential Election.
It is sometimes mistakenly
said that the Fed) cannot do anything in October of these
years. Sam Stoval is quoted
as saying the opposite is true. In the 9
presidential election years since 1976, the Fed
has done "something" in August, September and
October 7 times. (Source).

The data I set
out here can be used to provide a historical check on such statements.
I will be using this myself repeatedly in pur
Tiger/Peerless Hotline.

Rate
Hikes Are Bearish.

I think you will agree from the data below that 3 discount rate hikes is
normally bearish.
Doing this in a short period of time, 3 month, is very likely to
drop the market
more than 10%. This was true on 9/22/1978.
When rates were very low to begin with, as in 2002, three small
rate highes
did not stop the market in September 2004. In this case,
the market
when it started rising got used to the 1/4% rate hikes, much like
the frog in water
graudually brought to a boil.

Big jumps in rates, by 1/2% in one accouncement are very likely
to bring a 10% DJI
drop of more. This was true in the aftermath if the rate
hikes of
8/23/1957, 2/26/1973, 4/25/1974, 4/9/1984, 9/4/1987,
8/16/1994 and 5/16/2000.

After denying it would cut the Discount Rate, the Fed did what Wall Street
wanted, It did cut
the Discount Rate by 1/2% last Friday.
What will that mean for the market? Look through
the history of rate changes, market conditions and
Peerless signals and I hope you will get a
keener insight into how the Fed acts, how political
it is and what the likely outcome for stocks will be.

Next year is the year
of the Presidential Election. The Fed is now run by Republicans.
Everything we know about the Bush White House shows
how Republican partisianship is the
most important qualification for most appointments,
including those who sit on the Board
of Governors who vote on decisions to raise and
lower the discount rate, which sets the interest
rate banks must pay to borrow money from the Fed.

Bernacke is a
scholar with a special interest
in the monetary mistakes that led to the Great
Depression. He is also |
methodical and, according to one of his MIT
classmates whom I have talked with,
painfully slow to articulate what others are already
thnkiing, But each time
he speaks, unlike Greenspan, Volcker or Bush, the market
seems to rally.
He seems eager to win praise and finds it especially
difficult to displease.
These are qualities of decency that I certainly
admire. I think he will do
whatever he can to avoid much more of a sell-off in
the market. But is
monetary policy enough? And what will he do
when a Democrat takes over
in 2009? That's when the Fed usually tightens monetary
policy. Will that
puncture the hyper-inflated balloon of expanded
credit?

Having said this, I should note
that the Peerless System is a much better predictor of
the market than Fed watching normally is. This
is because of how often word gets out in
advance about what the Fed will be doing. The
DJI, for example, turned around at 12500
on Thursday mid-day and then jumped to 13175 on the
announcement. "Somebody
always knows." And they sold on the
accouncement on Friday at the high for the day!

"Don't Fight The Fed" Is Way Too Simple A
Rule To Use.

We want here also to test the
proposition that three or more discount rate hikes in 6 months
is very bearish. Some call this the "3
jumps and stumble" rule. These ideas have appeared
occasionally n Barrons. In the listing of
signals in the second half of this report, I use "***"
to indicate this was the third consecutive rise in
the Discount Rate in six months. It may surprise
you that this rule succeeded only five times and that
it failed three times, since 1955. Insiders
usually have gotten wind of the plans to raise the
Discount Rate, so often the market has
already significantly declined when the the
third hike is announced. There are many more
reliable ways to predict the market. See
the discussion of the 1970 bottom, for example.
And in declining markets, there is always the
possibility that rates will have to be lowered
many more than three times to turn up a stock market
in serious decline. Look at how many
rate cuts were needed by Greenspan to turn the stock
market up after 2001.

3 rises in 6 months:

9/9/1955 - DJI fell from 477 to 442 in a month and then
entered a trading range
between 466 and 520 for a year.
3/6/1959 DJI rose from 615 to 680 in next 4
months and then pulled back to 620 in next two.
5/4/1973 DJI was in early stages of a bear maket
that would last another 19 months.
1/9/1978 DJI fell from 780 to 750 in next 3
months and then began rising for 7 months.
9/19/1979 DJI fell sharply from 880 to 800 on 6 weeks.
12/5/1980 DJI rose from 925 to 1020 in four
months and then fell to 825 in the next 5 months,
11/15/1994 DJI fell from 3828 to 3775 in a month and
then began a bull market.
5/16/2000 DJI began a 34 month bear market.
8/10/2004 DJI immediately started to rise from 9800 amd hit
10950 in six months.

Fed Chairman Wm.McChesney Martin: 1951 to 1970

1956 and 1960The Fed has tried to seem non-partisian and independent. But we may
safely, I think,
predict that they will do all they can to prop up the
stock market through the end of next year.
It did not used to be this way. While
Eisenhower was President, the Fed raised rates as
his re-election in November 1956 came closer. But
then the Fed Chairman had been appointed
by a Democrat, Truman. See the
Fed's six rate hikes, shown below, between
8/15/1955 and 8/24/1956. They did much
the same thing before the 1960 Presidential race.
There were five rate hikes, but also a key rate
decline five months before the November
1960 Presidential Election. Broad trading
ranges dominated most of 1956 and 1960. The
Fed wanted to preserve the appearance of
independence. Its actions stabalized the market
at this time, to avoid drawing attention to itself
and to avoid making its own actions become
the subject of the campaign.

1960

"When Vice PresidentRichard Nixon
was running for President in 1959-1960, the Fed was
undertaking a monetary tightening policy that
resulted in a recession in April
1960. In his book Six Crises, Nixon later blamed his defeat in 1960 in part on Fed policy
and the resulting tight
credit conditions and slow growth. After finally
winning the presidential election of 1968, Nixon
named Burns to the Fed Chairmanship in 1970 with
instructions to ensure easy access to credit
when Nixon was running for reelection in 1972.[1]Later, when Burns resisted, negative press
about him was planted in newspapers and, under the
threat of legislation to dilute the Fed's
influence, Burns and other Governors succumbed.[3][4]Inflation resulted,
which Nixon attempted
to manage through wage and price
controls while the Fed under Burns maintained an expansive monetary
policy. After the 1972 election, price controls began to fail and by 1974, the inflation rate
was 12.3 percent.[1]"
(Source: http://en.wikipedia.org/wiki/Arthur_F._Burns
)
See also http://www.fame.org/HTM/Creating%20More%20Fiat%20Money%20and%20Winning%20an%20Election%20Bresiger%20Burns%204.htm
)1961-1964
With Kennedy elected in a close race, the Fed was unusually quiescent. It did not
raise rates until July 17, 1963. It also did
not intervene positively in the panic that followed
the Cuban Missle Crissi in the Fall of 1962.
Perhaps, recognizing the 1964 Election was going
to be by a landslide of sympathy for the Democrats,
because of the assasination of JFK in
November 1963, the Feds sat on their hands throughout the
1964 Presidential Election campaign.
As a result the 1964 stock market continued the same gentle
upwards trend it had shown in 1963.

1965-1968 The Fed
raised rates for the most part in the year before the 1968 Presidential Election,
raising them in November 1967 (which
helped send the market down until March 1968),
as well as in March and May of 1968.
With the US war in Viet Nam raging in 1968 and
the country dealing with widespread civic
unrest set off by the assassinations of Martin
Luther King and Robert Kennedy, the Fed
lowered the Discount rate by a mild 1/4%,
but raised margin requirements. No
effort was made to help another Democrat to
stay in the White House. Economic
news played second fiddle anyway to the war in
Viet Nam.

Arthur Burns was
appointed by Nixon is 1970 and
served as Fed Chairman until 1978,

1969-1972 The Fed decided to drop the stock market very early in the new Republican
President's
tenure. It raised the Discount rate
from 5.25% to 6.0% by April 4th, 1969. And the
stock market fell sharply. (See
Peerless charts of DJI below). The DJI fell from 970
in May 1969 to 540 in May 1970.
Articles have appeared in Barron's suggesting the
utility of watching for three successive
Discount Rate/Fed Funds Rate hikes before
selling out and three successive Discount
Rate/Fed Funds Rate declines before buying.
Multiple Peerless major Sell signals work
better, especially after only two Discount
Rate Hikes or Declines. Thus,
Peerless gave many major Buy signals from May 1970
to the end of the year. The Fed
showed it wanted the stock market to rise by lowering
the Discount Rate fives times between
November 1970 and February 1971. The DJI
responded by roaring ahead, setting up
the Republican Richard Nixon with a strong
market going into the 1972 Presidential
Election.

When Nixon's 1971
New Economic Plan made investors fear that wages, prices and
possibly incomes might be controlled, the stock
market fell sharply. Nixon privately demanded
the Fed cut interest rates and Burns stop
stressing "fears of inflation" in his appearances
before Congress. Adding to his pressure
on the Fed, Nixon even let it be known that
he was considering backing legislation which
would expand the number of Fed Governors.
This would let him "pack" the Fed
with supporters who would back his more expansionist policies.He
even spread a rumor that Burns wanted a $20,000 raise.

Not surprisingly, the FED succumbed to this pressure. Burns had been Fed Chairman
little more than a year. So, he
accomodated the President. He cut the Discount Rate in
November and December of 1971. That
quickly had the desired effect and sent the market
up sharply from a 790 low to 960 in the summer
of 1972, the Presidential Election year. Nixon
got what he wanted and was re-elected by a wide
margin in November 1972.

With a Republican re-elected, the Fed decided to follow the same approach
that
they had used so effectively in 1969.
They immediately set about bringing a market
decline early in the incumbent's four
year tenure, so that they would have plenty of time to
make conditions turn-around before the
1976 Presidential year. They raised rates steeply,
sending them from 4.5% to 7.5% by August 14,
1973. The market swooned. The previous
bull market had been much more limited to blue
chip and energy related stocks. With the
DJI down already from 1050 to 875, they even
raised rates again in April 1974 to 8.0%.
The DJI then plunged sharply as Richard Nixon
resigned, rather than face impeachment.

By December 1974 the
DJI had fallen 40%, from 1050 in January 1973 to 580. Many
smaller stocks were down 80% or 90%.
Finally, on December 9th, 1974 the Fed signalled
they wanted the market to stop declining.
They lowered rates by only 1/4%. It was enough
to send the extremely oversold market up.
The Fed then lowered the Discount rate 4 more
times by May, 1975. Rates still stood at
6.0% until the Election Year. In January 1976,
they lowered the rates one more time, to 5.5%.
That had the desired effect and the DJI
rose from 900 to nearly 1000. The markets
anticipated this rate cut by starting up a
month earlier and breaking out of a
well-defined trading range backed by a Peerless Buy
in November. The stock market then went
sidewise again for the mast 8 months of 1976
and the Fed avoided public notice during the
Presidential Election Year when it might
otherwise have become the subject of political
debate.
1977-1980

Discount rates went up and up with Democrat Carter in the White
House. The pattern of
allowing a stock market decline the year after the
Presidential Election year (i.e. 1957, 1969,
1973, 1977 and 1981) continued. The Discount
Rate rose from 5.25% to 6.5% as the
stock market fell. After the DJI had fallen
26%, it bottomed in March 1978. A perfect
example of an inverted head and shoulders bottom
appeared. So did a major Peerless Buy,
right at the bottom. The market rebounded
strongly without Fed help. The Fed was willing
to allow more market weakness, as they raised
interest rates over and over again. On
9/22/1978 they increased the Discount Rate to 8.0%.
This was the fourth rise in four months.
Then they did it again on 10/16//78, pegging it at
8.5%. This and a very timely Peerless Sell
sent the DJI into the "October 1978
Massacre". And it did not stop there. The Fed repeated
the same pattern in 1979, raising rates for four
straight months, until they stood at 12.0%.
This brought on the "October 1979
Massacre", also called perfectly by Peerless major Sells.

As if to show
Democrats, that they would not tolerate them in the White House, the Fed
raised rates to 13.0% on February 15, 1980.
This and a new set of Peerless Sells caused
the "Bunker Hunt panic" of March 1980.
At this point, the Fed must have realized that
their extremely tight money policies could, if
continued, easily become the subject of debate
in the 1980 Presidential Election Year. They
finally lowered rates to 11.0% in June 1980
and a mere (sarcasm here!) 10% in July 1980.
But to be sure Carter would not be re-elected,
they raised rates back to 11.0% six weeks before the
Election. The Fed's actions in
dramatically raising interest rates went a long ways
in defeating Carter and making him
look ineffectual.

"Tight
Money" Paul Volcker was appointed by Carter in August 1979 to be Federal Reserve
Chairman. He had been UnderScretary of the
Treasury under Richard Nixon. Volcker sabotaged
Carter and the peanut farmer - nuclear engineer from
Georgia never even saw it coming! Volcker
used the excuse of rising commodity prices to raise
interest under Reagan, too, but it was early
in Reagan's Administration that he did this. At
the time, Carter was seen as having made a dire
mistake. He has put "Dracula in charge of
the blood bank. To us, it meas a crash ... is more
likely than ever." Why did Carter
make this mistake? More may be written about that here.
Suffice it say now that Carter was naive and trusted
Republican and NY banker David Rockefeller.
Volker testified before Congress for eight years.
I was always surprised that Congress accepted
his testimony and the economic suffering his tight
money caused with relatively little criticism,
apart from home builders and union representatives.
He surely made a lot of wealthy fixed income
people happy! They apparently have much mnre
influence.

1981-1987
Volcker raised
the Discount Rate to a high of 14% by April 1981. By October, the DJI had
fallen to 820 and he started to ease off his
anti-inflation throttle. In November and December
1981, he lowered the rates to 12%. When the
market started to sink again in 1982, he lowered
the Discount Rate no less than seven times by December
1982, to 8.5%. That, of course, launched
a very rapid rise in the stock market. Real-time, we
got a record number of major Buys at this time.
The DJI went from a low of 780 in Auhust to 1075 by the end
of 1982. Volcker was certainly aware
that his renomination to continue as Fed Chairman in mid
1983 required him to show he knew how to
lower rates, too.

Volcker
returned to his tight money policies once more. That was in April 1984 and while
the market was correcting from its 50% advannce since August
1982. It continued down until
late July and then surged upwards. Investors remembered the
similar take-off in the late Summer
only two years before. Volcker obliged the market and
steadily lowered interest rates for
the rest of his term in office. By then the DJI was well
above 2400, up 200% from the August
1982 bottom. This made Reoublicans look very good at
running the economy.

President
Reagan appointed Alan Greenspan (left)
to replace Paul Volcker (center) as chairman of
the Federal Reserve Board in June 1987.

1987 - 1992
"S9/S12"

Greenspan was made Chairman of the Fed in June
1987. Early in September with the
DJI at 2500, the Fed raised the Discount rate
to 6.0%. The Fed
Funds rate had been6.1% in
February 1987 when the stock market was romping upwards. It rose to 6.73%in August
and then 7.22% in September under Greenspan. Fed watchers got
"spooked".
Was this to be a return to the "tight
money" policies of Volcker? The DJI rallied and everthing
seemed fine in early October. But
Peerless gave a real-time major Sell from all its three most
important indicators. And within three
weeks the DJI had plunged from 2600 to 1740! The
Fed did not cut the Discount Rate, but they did
give private guarantees to brokerages and Specialists
that they wpuld get all the credit they needed
to weather the panic. And the Fed Funds rate
was slashed by an unprecedented 60 basis
points. This was a demonstration that the Fed would
prevent a repeat of 1929.

The Slash in Fed Funds Rate in 1987 Was not
without negative consequences. The Dollar fell sharply.

1998-1992 The Fed raised the Discount Rate just once in 1988 and
one again in 1989, to 7.0%.
When the stock market plunged 20% with Iraq's
invasion of Kuwait, the Fed lowered rates
in December and again in February to
6.0%. That boosted the market, as did the pride of a
swift military victory by an international force led
by the US to remove Iraq from Kuwait.

The Fed
soon set about to drop interest rates and boost the chances of getting Bush I
re-elected in November 1992. The Discount Rate fell
dramaticaly from 6.0% in February 1991 to
3.5% in December 1991. Not surprisingly, this lifted
the stock market, even as fears
of an enveloping
savings and loan scandal grew. By July 1992, Greenspan and company
had lowered rates to 3.0%. Surprisingly, it was not enough.
I still recall watching Bush look at his
watch during the Presidential debate with Clinton. That was
a serious mistake.
1992 - 1996

Greenspan and the Fed did not raise rates the year after Clinton took office, as the Fed
usually has done. I argue that this is normally done when a
Republican is in the White House,
so that rates can be cut in the second half of his term to give
the public a rosier view of the economy
during the Presidential Election year. Whatever the reason,
the Fed waited. And then
early in 1994, without any apparent good reason, Greenspan
started talking about tightening
rates. The DJI quickly fell 10% and started working its way
back up. To drive it back
down, the Fed raised the rates three more times by February 1,
2005.

"In 1994 he virtually wrecked Clinton's first term,
by raising interest rates immediately
after the 1993 deficit
reductions, which were supposed to bring rates down, passed into law.
The destructiveness of
that 1994 action is now clear. Whatever happened to the threat
of inflation? It
never existed. The economy last year was actually much more fragile
than Greenspan
thought.

"Can't anyone make a mistake?
Yes, but this is not the first time. A bias toward high
interest rates and high
unemployment is part of Mr. Greenspan's personal, political,
and ideological fabric.
It is not accidental. It is systematic.

"Personally, Alan Greenspan is
a very, very conservative man, not a run-of-the-mill
conservative but a
philosophical extremist. Long sympathetic to the gold lobby, he
once gave one thousand
dollars, I'm reliably told -- a thousand dollars! -- to the 1984
reeelection campaign of the
Senate's most powerful reactionary (and closet gold bug),
Senator Jesse Helms.

"Indeed, Greenspan's entire
professional life has been devoted to the service of the
rich. His early ideology, as
a follower of Ayn Rand, celebrated such service. And his
later career, private and
public, confirms that the rich and powerful are the people
he respects, admires, and
works for.

"In the mid-1980s, these leanings
took Greenspan into the orbit of Charles Keating, the
highest flyer in the Savings and
Loan industry at that time. Keating's Lincoln Savings
and Loan Association was in
trouble, as regulators wised up to its real estate scams.
Keating needed lots of help.
Greenspan, then a private consultant, obliged. On one day for
which we have records, December 17,
1984, Mr. Greenspan traveled to Washington to lobby
on behalf of Mr. Keating.
Greenspan's personal fee for that one day was $12,000. "What
kind of work did Keating get? On February 13, 1985, Greenspan wrote a long
letter to the principal
supervisory agent of the Federal Home Loan Bank in San Francisco.
In it, he committed his vast
prestige to the proposition that Lincoln and Keating presented
"no foreseeable risk to the
Federal Savings and Loan Insurance Corporation....

"In fact, Lincoln Savings and Loan
Association was at the heart of a massive fraud; those
'sound and profitable direct investments'
were mostly worthless. The collapse, when it
came, by itself cost American taxpayers over
three billion dollars, more than any other single S&L.
It resulted in more than six felony convictions, including
that of Charles Keating."

Though the market wobbled in late 1994, after a perfect Peerless major Sell, it righted
itself
and started moving higher. A few weeks later the DJI,
SP-500 and NASDAQ all had broken
into new all-time high territory and were advancing
steeply. The Internet Boom had started.
The Fed had tried to reign in the advance, presumably not liking
the idea of an incumbent Democrat
being re-elected. But they had failed.
Greenspan even took his hat off to Clinton on January 31, 1996
by nominally lower the Discount Rate to 5.0%, still two
percentage points higher than it
had been when Bush I ran for re-election.

1997-2000
The stock market rocketted upwards sharply from
1995 to 2000. The Fed helped this
wonderful time by lowering interest rates from 5.0% to 4.5% in October
and November 1998,
after the DJI had fallen back 20% from its Summer highs.

Clintom reappointed Greenspan on
January 4, 2000
CNN wrote at the time: "Praise for Greenspanstems
partly from his prominent role in steering
the U.S. and global economies away from several near-recessions, the
savings and loan crisis
of the late-1980s, the overheating U.S. economy of 1994, the Asian
financial crisis in 1997,
and the Russian debt crisis and Long-Term Capital Management bailout in
late 1998." The
DJI fell from 11,358 to 10,998, or 360 points on the announcement.
Insiders know interest rates
would soon be raised and the speulative bubble pierced. Did
Greenspan simply wait for his
reappointment before raising rates and starting the longest bear market
since the early 1930s?

By the Presidential Election year
2000, it was clear to most that there had been a wildly
speculative boom in unseasoned internet stocks. Instead of
raising margin requirements, which
had been done in 1968 very effectively to stop excess speculation in
low priced stocks, the Fed
under Greenspan sought to burst the bubble from August 1999 to April
2000, during which time
the Discount Rate was raised on five occasions, from 4.5% to
6.0%. The effort worked. The
stock market started sagging even before the Election in
November. The NASDAQ lost 50%
from its March high to the end of the year. And the Republican
Bush II was elected President
in a very narrow race that the Supreme Court decided.

Clintom reappointed Greenspan om
January 4, 2000.

2001-2007

The Fed started the bear market of 2001-2003 by tightening interest rates to stop the
speculative dot.com binge and to help the Republican Bush
II to get elected. It took a lot more
of rate cuts than they probably expected to finally stop
the decline, made worse by 9/11 terrorism
and the extreme hangover consequences from the wild late
90's internet craze. Finally, the Discount
Rate had to be lowered to 3/4%! That worked. In
March 2003 the DJI started rising. It had fallen
from a high of 11,700 to a low near 7,500.

Greenspan never tried to hide his Republican bias. He
certainly went beyond his job description
and supported Bush's 2001 tax cut plans and proposal to
phase out Social Security in favor of
private retirement accounts. But he was not such a
partisian that would allow a runaway stock
market, as had occurred under Clinton in the 90's. He
raised Discount Rate by 1/4% five times
in 2004. That put the market into a typical
Presidential Election Year trading range or holding
pattern. He rised it nine more times in 2005, each by
1/4%. That still left rates at 5.5%
going into 2006. The stock market rose steadily
without a 10% correction in the DJI until 2007

Ben Barnacke became Chairman of the
Fed in February 2006. By May 2006, it was getting
difficult to raise rates without bringing the market down.
When rates were raised on May 10th,
2006, just a few days after a Peerless major Sell, stock prices
began to fall sharply. The DJI
managed only to fall by 6%, but world markets and the NASDAQ fell
more than 20%. How could
the Fed bring the market into a smooth decline? That became
the burning question for the
new Federal Reserve Chairman whose academic interest had been the
Great Depression and
the monetary policies that he believed made it happen.
Cautiously, he raised rates to 6.25% in
June 2006 and then signalled he would not be raising them again.
In this he was following the
examples of the previous Republican Fed Governors when a close or key
Presidential Election year was
approaching, notably Volker in 1983 and Greenspan in 1991 and
2002-2003.

Conclusion

Under pressure from Wall Street to lower the Discount Rate to
avert a financial panic,
as Greenspan had done in 1998, Bernacke acquiesced and lowerd the rate
this Friday by 1/2%.
There is a difference. Greenspan waited for the stock market to fall
nearly 20% before doing this
1998. Bernacke is trying to head off such a decline early.
His action, of a 1/2% rate cut shows
intent. And most traders will tell you, "Don't Fight The
Fed". I would say, at least, until there are
very clear signs that we have started a bear market, it is safer to
believe the Fed will prevail than
it will not. Fed rate cuts in a rising market tend to push the
market higher. Lows like those made recently
tend to hold.

It takes more and more
"liquidity" (i.e. national
debt to keep the bubble
from popping.

Outcome
Republican in White House.
4/15/55
1.50% to 1.75% mkt
fell from upper band to lower band and then kept rising.
8/15/1955
2.0% mkt rose
from lower band to above upper band and pulled back again.
***
9/9/1955
2.25% mkt fell from upper band and made a 10% decline from highs.
11/18/1955
2.50% mkt went sidewise in bullish end
of year season.

09/12/1958,
2.00 Had no effect.11/07/1958,
2.50 Brought decline to lower band and resumption of
rally.
03/06/1959,
3.00 Brought shallow decline to lower band and rally's
resumption. 05/29/1959,
3.50 Brought decline to lower band and resumption of
rally.

09/11/1959,
4.00 DJI fell to lower band after last rate increase. 06/10/1960,
3.50 mkt fell back to and below lower band.
Decline continued until an October 1960 bottom.

Discount Rate raised 08/12/1960,
3.00 Mkt
declined to lower band. Peak had been in January 1960 at 690. Bottom was
not until October 1960 at 570.
Democrat was in White House.
07/17/1963,
3.50
11/24/1964,
4.00 12/08/1965,
4.50 3rd successive increase is bearish.
Top in January 1966 at 990 and decline to 780 in October 1966.

" The focal point of the book is the celebrated and controversial tenure
of Federal Reserve Chairman P
aul Volker (1979-1987), but the mechanics of central banking so clearly
and concisely explained are just
as much applicable today as in 1980 - or 1950 for that matter.

Greider divides the book into three more-or-less equal
thirds. The first covers the inflationary surge of the
1970s, Carter's tenuous decision to appoint Volker, and Volker's
radical move of abandoning the control of
interest rates in favor of controlling the nation's money supply. (In
other words, a shift from the Keynesian
orthodoxy dominant in the post-War period in favor of a monetarist
approach more in line with the theories
of the iconoclastic economist Milton Friedman.) The second, and most
informative third provides an
historical overview of central banking and its development in the
United States. For those solely interested
in a better understanding of central banking and the US Federal Reserve
in particular, this book will be
worth your while even if you only read this middle section. The final third
deals with Volker's punishing monetary
policy during the early 1980s, as he attempted to destroy lingering
anticipation of inflation and the incredibly
simulative effects of the Reagan era federal deficits and tax cuts.

Greider is highly critical of Volker's performance as Fed chairman. In short,
he argues that far from being
the independent and benevolent Shepard of the economy it often claims to be,
the Fed, in practice, is in
effect waging war on the millions of ordinary Americans struggling to make
end meets and keep their heads
above water."
(Source: http://www.amazon.com/gp/product/customer-reviews/0671675567#customerReviews
)